Congressional Black Caucus Raises Concerns With O-Zone Regs

December 28, 2018

Secretary Steven Mnuchin
Department of the Treasury
1500 Pennsylvania Avenue
Washington, DC 20220

Commissioner Charles Rettig
Internal Revenue Service
CC:PA:LPD:PR (REG-115420-18), Room 5203
P.O. Box 7604, Ben Franklin Station
Washington, DC 20044

RE: Docket:IRS-2018-0029

Dear Secretary Mnuchin and Commissioner Rettig:

I welcome the opportunity to comment on the recently proposed regulations to implement relevant provisions of last year's new tax law that are intended to incent investments in newly created “Opportunity Zones” via investments in “Qualified Opportunity Funds” that are provided with preferential tax treatment. The Members of the Congressional Black Caucus have worked with local elected officials and other relevant stakeholders in an attempt to ensure that the implementation of this new law stays in line with Congressional intent that these investments benefit underserved communities and the citizens of those communities.

While we appreciate that there is potential for communities to benefit from the new incentive structure created by the statute and implemented by the Treasury Department, we have concerns based on conversations with some experts that work in economic and community development regarding the proposed regulations that are important to convey here.

First, the Treasury Department should draft rules that ensure that benefits flow to communities and residents, not just wealthy investors. Some of the already designated Opportunity Zones contain or abut communities that are well off already or already receiving ample investment flows. Investors tend to seek out high returns on invested capital and so it is important that Treasury ensure that rules do not allow investments to leverage Opportunity Funds to further enrich already well off communities. Congressional intent to ensure that underserved and economically challenged communities are prioritized should be complied with in any final regulations. The Opportunity Zones must not become a vehicle for the wealthy to shelter their wealth in perpetuity. Treasury should write final rules that require more robust interaction with communities, promote partnerships with existing local stakeholder organizations and articulate job creation targets or commitments that must be met in order to preserve the generous tax benefits on offer.

Second, the Treasury Department should issue final regulations that ensure that the Opportunity Zone program is leveraging existing economic development programming as much as is practicable. Other valuable economic development assets exist across the federal government that partner with local stakeholders to address the unique economic needs of investors, citizens and businesses in underserved communities. It would be wasteful to issue regulations that do not contemplate these existing assets and ensure that the benefits that flow from the Opportunity Zone investments are not properly leveraged by being layered on top of other impactful investment programming.

Third, the Treasury Department should promote transparency and taxpayer accountability by requiring sponsors of Opportunity Funds to track investments to ensure that jobs are being created, minority and underserved businesses are participating in economic growth and that local institutions are being engaged in a meaningful fashion. I will reiterate, it is important that this program not become a boondoggle for well-heeled investors, but rather a meaningful delivery system for sustainable and broadly shared investments.

The Opportunity Zone provisions were included in the tax legislation as one of the few provisions intended to benefit people that were not already wealthy. The rest of the legislation was a massive giveaway to the richest of the rich. The Treasury Department should take its responsibility seriously here and ensure that the public's interest in promoting sustainable economic and community development is being met. If the Treasury Department fails to implement final regulations that were crafted with community benefit prioritized above all else, the American people-especially those that reside or work in economically challenged communities-will not be well served. History will not be kind to the Treasury Department if it crafts a massive tax shelter instead of an impactful and transformational program. The Members of the Congressional Black Caucus will be monitoring developments in this area closely and expect the Treasury Department to be forthcoming in providing relevant responses to oversight inquiries from the Caucus. Thank you for your attention to this important matter.

Sincerely,

Cedric L. Richmond
Chair
Congressional Black Caucus
Washington, DC